I. Distinguish the Types of Secondary Distributors In the atmosphere of "terminal is king," large manufacturers have attempted two types of changes in their distribution structures: First, canceling or weakening the functions of first-level wholesalers, developing and transforming secondary distributors into "direct-controlled distributors," achieving what is commonly called "deep distribution." The manufacturer still sells to intermediate customers, which is the sales model advocated by Yili's distributor system and Uni-President's "auxiliary sales office" system. Second, manufacturers directly build their own channels and control terminals, usually targeting modern terminals, such as the supply model to Gome and Suning in home appliances, or the direct distribution model of Coca-Cola and Pepsi to all types of terminals. In this case, manufacturers bypass intermediaries and deal directly with terminal merchants. The problem is not the models themselves; these models are more a contest of corporate resources and market ambition than scientific, representing modern sales concepts and trends. The issue is that the so-called deep distribution model is not an "axiom" for sales development. The existence of secondary distributor problems is partly because many brands have succeeded by making good use of secondary distributors, and partly because not all companies can directly make terminals their trading partners. How should we understand the secondary distributors in the Chinese market? First, look at the forms of secondary distributors. Currently, in the FMCG sector, secondary distributors exist in three forms:

  1. Storefront operations in traditional wholesale markets (mainly wholesale);
  2. Wholesale and retail combined operations on city streets;
  3. Wholesale and retail combined operations in county towns and townships. These three types of secondary distributors have very different business models: Those in traditional wholesale markets mainly focus on large-scale wholesale to county towns and cross-regional areas. Although these secondary distributors have their own downstream customers for different products, careful analysis reveals that their downstream customers overlap significantly. That is, when their goods are mainly distributed to counties and towns, the valuable customers are basically the top three in the local area. This means that the "network nodes" truly leading to the "market grassroots"—counties, towns, and villages—are actually very narrow. The reason manufacturers cannot penetrate these market grassroots is that they are a sea of counterfeit products. Procter & Gamble's once-praised "ROAD SHOW" (rural roadshow brand campaign) went silent precisely because of the impact of counterfeits and fakes! Therefore, China's current wholesale markets and county/town wholesalers are ecologically symbiotic; they complement each other. Wholesale markets are usually bridges for low-value, low-price products to quickly penetrate county and town markets. We call these secondary distributors "circulation-type secondary distributors." This is our first conclusion from research on Chinese secondary distributors. What about the secondary distributors in urban streets who combine wholesale and retail? These typically have their own warehouses, delivery vehicles, terminal outlets, and wholesale customers. Their main profit path is to provide diversified or even one-stop delivery supply around the direct-supply terminals they control. Many of these secondary distributors have established their positions as community distributors for leading local brands. Because these secondary distributors are directly controlled by manufacturers, many lack the ability to independently promote, or they transition to first-level distributors. This is a special type of secondary distributor that relies on "customer relationships" (geographical advantage) to do business. We call them "channel-type secondary distributors." This is our second conclusion from research on Chinese secondary distributors. II. Eight Methods to Control Secondary Distributors After clarifying the above issues, how to develop secondary distributors becomes a strategic choice for different manufacturers entering the market.
  4. Plan the development of secondary customers and set up a reasonable wholesale distribution structure. The channel distribution system in the figure below is a fully covered channel structure for a general distributor (or direct-operated branch) in a medium-sized prefecture-level market. The red parts are wholesalers or distributors, representing three wholesale forms:
  5. County distribution: Set up a sole distributor in the county-level market under the jurisdiction. This distributor has strong terminal coverage in the local county, able to directly deliver products to A-level supermarkets and ordinary county retail stores. Such wholesalers actually have quasi-distributor nature; once established, a good cooperative relationship must be formed.
  6. County wholesale-retail stores: Widely set up county wholesalers, using multiple distributors to achieve terminal coverage, while directly targeting the county's A-level supermarkets to establish image terminals.
  7. Wholesale market secondary distributors: This is the most traditional form of large circulation. Since goods in wholesale markets mostly flow to county and town wholesalers, their main means of attracting customers is complete assortment and relatively low prices. Therefore, when the first two distribution forms have achieved relatively ideal terminal coverage, wholesale market secondary distributors often become centers for cross-regional dumping and price undercutting. The above three secondary distributor setups are usually a combination. As product terminal coverage increases, the proportion of the three combinations will also change. Generally, during the growth period, sales from the three channels may be roughly equal. By the maturity stage, it is best to control the sales of wholesale market secondary distributors to no more than 20%, and their shipping rhythm must be controlled. Golden Monkey, a rising star in the Chinese candy brand, built a huge terminal network relying on strong distribution capabilities in second- and third-tier markets, and sales soared. At that time, Golden Monkey became a hot seller in wholesale markets, yet it clearly proposed to "strangle the wholesale market" to protect the interests of terminal distributors and maintain the price system. This is a good case.
  8. Pay attention to shipment price, quantity, and rhythm. The second key to controlling secondary distributors is to control their shipment price, quantity, and rhythm. When there are multiple secondary distributors, their competition inevitably becomes price undercutting, known as "peeling the plate" or "skinning." If the manufacturer does not regulate and continues to push trade promotions, it will quickly lead to a series of market ailments: shrinking sales, fewer customers (wholesale accounts), insufficient terminal coverage, etc. The result is that you gradually find "no promotion, no sales; with promotion, sales," then "big promotion, sales; small promotion, no sales," until "even with promotion, no sales!" Therefore, when the product has not undergone generational changes, to maintain the product life cycle, you must always monitor the shipment situation of secondary distributors. When you find secondary distributors selling at low prices, abnormal sales fluctuations, or increased purchase frequency, you should investigate their shipments to determine the real reason for the abnormal sales or purchase frequency. If there are signs of cross-regional dumping, adjust sales policies and control their purchase quantity or rhythm. The best way to manage secondary distributors is not rigid, unchanging fixed prices, but flexible control of shipment quantity, i.e., adjusting their single purchase quantity and frequency. This is a more advanced circulation operation skill.
  9. Master the downstream sales data of secondary distributors. Regardless of the type of secondary distributor, their sales targets are essentially wholesale-retail operators or terminal retailers. To effectively manage secondary distributors, you must have a clear understanding of the flow of 80% of their goods. You can gradually grasp the sales data of their downstream customers through terminal merchandising assistance or by auditing and reimbursing promotional expenses. Business personnel should regularly visit key customers and establish a terminal customer sales database.
  10. Assist secondary distributors in managing their core terminal customers. Good secondary distributors are cultivated. Distributor business personnel or manufacturer salespeople should assist secondary distributors in managing their core terminal customers. Through store entry negotiations, promotion planning, promotion execution training, joint customer visits, and other forms, improve the relationship between secondary distributors and terminal retail stores. This also guides them to transform into terminal distributors, making them willing to proactively cooperate with the manufacturer's terminal coverage requirements, reducing the probability of cross-regional dumping and price chaos.
  11. Revoke the distribution rights of non-compliant secondary customers or control shipments. The difficulty in managing secondary distributors lies in the decisiveness when facing trade-offs, i.e., how to deal with large secondary distributors who do not follow the rules. Our view is: after planning the first four items, the problem of large accounts can be solved very easily: either obey the game rules or get out; there is no hesitation. But if it is a traditional distribution pattern, especially the platform distribution pattern above, where the distributor relies too heavily on secondary distributors, it will inevitably be impossible to cooperate with the manufacturer in taking decisive action against troublesome large secondary distributors. In 1998, Anhui Shengquan Brewery had a large liquor distributor in the Woyang area of Fuyang City, selling 8,000 tons of beer annually, making it Shengquan's largest distributor. However, due to a long-formed habitual thinking of demanding policies and subsidies, it never paid attention to the management of the office. When the newly established marketing department of Shengquan made a new marketing plan requiring the distributor to cooperate on price system, logistics order, channel data reporting, etc., the large distributor still ignored it. After multiple communications including an ultimatum, they decisively stopped shipping to it and revoked its distribution rights, developing three new distributors instead. As a result, the market recovered quickly within less than a month, sales increased by 20% compared to the same period, and the customers coordinated the price system and made more profit.
  12. Attack from afar, befriend from near: Control core terminals outside your doorstep as much as possible. The most important weight in managing secondary distributors is the number of directly controlled core terminals. Distributors usually like "befriend from afar, attack from near," meaning they keep nearby terminals in their own hands and hand over distant county-level terminals to secondary distributors. This is actually a huge operational misunderstanding, and many market fluctuations and instabilities stem from this. The distributor's "befriend from afar, attack from near" is a product of natural thinking, lacking deep understanding of the market, thinking they can eat meat while others chew bones—this is undoubtedly wishful thinking! If distributors lose control of core terminals, they lose the ability to regulate the market. The correct method is "attack from afar, befriend from near": hand over the delivery of nearby core terminals to urban secondary distributors (while maintaining trading relationships with core hypermarkets), use some of your own vehicles to directly operate A-level terminals in county towns, and develop distributors to cover other channel terminals. Distributors need not fear that after doing core terminals themselves, no secondary distributors will cooperate with them. When distributors operate county A-level terminals well, secondary distributors will come knocking on their doors.
  13. Conduct irregular market coverage drives on terminal networks. Channels actually need constant stimulation to unleash their energy. For secondary distributors, their operational software and hardware (personnel, vehicles, etc.) resources are shared by various brands. If you don't strive for their resource allocation, other brands will occupy it, and your sales will inevitably decline. How to constantly stimulate secondary distributors? Not wave after wave of trade promotions, but periodic surprise terminal coverage drives, especially for small and medium terminals below A-class stores. How to conduct coverage drives? Generally, there are three situations:
  14. For old products, 30 days before the peak sales season and 30 days at the end, organize manpower for surprise coverage of small and medium terminals;
  15. Coverage drives when new products are launched;
  16. Coverage drives centered on merchandising for large consumer terminal promotions. Coverage drives are the best way to stimulate secondary distributors and squeeze out competitors. Regardless of your brand, among secondary distributors, the brand that can mobilize their resources to the greatest extent will become the brand with the highest sales for that secondary distributor!
  17. Strategically stabilize secondary customers during crises or competitive impacts. When competitors conduct strong trade promotions, it will have a significant impact on your secondary distributor system. You must respond quickly. Effective measures are:
  18. Classify secondary distributors into A, B, C categories based on sales. First stabilize B-type, the middle-level secondary distributors. These typically account for 20% of total customers and over 40% of sales. You can compare the "promotional benefits" (note: not intensity, but benefits!) of competitors, convert them into your product's sales ratio, design tiered reward policies, first sign reward agreements with middle-level customers and collect funds (occupying funds and warehouse space). This action must be quick to be effective.
  19. Disintegrate A-type, the large accounts. These account for 10% of total customers and over 30% of sales, but they are not easy to cooperate with manufacturers. Therefore, while quickly stabilizing middle-level customers, start negotiations with large accounts to disintegrate them. For individual large accounts, as long as they promise not to participate in competitor activities, you can give non-direct discount super rewards, such as travel, durable goods, etc.
  20. Immediately start surprise terminal distribution to block competitors at downstream terminals. The above eight methods cover all links from planning to competition, forming a systematic set of secondary distributor operation skills and an effective operational sequence. As long as you do each step in the above order, you will be able to control the market with ease! Reply with the following keywords to categorize and read related professional articles: Sales Supervisor, Secondary Distributor Management, Regional Manager, Distributor Management, New Channels, City Manager, Competition, 2015, Manufacturer-Dealer Game, Product Slow Sales, Terminal Visit Management, Route Management, Deep Distribution, Internal Management, Sales Skills, Profit Improvement, Recruitment, Distribution, Daily Management, Team Motivation, Trade Promotion, Sales Misconceptions, New Product Launch, Township Market, New Product Pricing, Sales Target Achievement, Forcing Orders, Market Visit Inspection, Baijiu, Beer, Sales Increase, Agency Products, Cross-Regional Dumping, KA, Terminal Merchandising, New Market, Market Operation, Learning, Book Recommendations, Inventory Management, New Salespeople, Consumer Promotion, Execution, Old Products, Expired Product Handling, Model Market, Investment Attraction, New Media, Distributor Development, Performance Appraisal, Assessment, Annual Planning, Shopping Guide, Morning Meeting, Display, Transformation, Stock Pressure, Festivals, Distributor Cost Control, Channel Operation, Marketing Theory and Laws, Brand Truth, Order Meeting, Team Management, Training, Debriefing, Debriefing Report.